Oil sees spreads widening as pipeline problems continue

All Pumped Up With No Where To Go!

There were more pipeline and refinery problems leading to the likelihood of more crude oil back-ups and a renewed widening of the Brent/WTI spread. RBOB popped as fears of a power outage at another refinery emerged and expensive Brent crude based imports led to fears that the East Coast will have to continue to pay through the noise when they go fill up at the pump. Yet the American Petroleum Institute reports that crude supply surged by 3.62 million barrels .U.S. oil is all pumped up but has nowhere to go.

Reuters News reminds us that it is not just the “Seaway Pipeline” reductions that are adding to the crude glut. Magellan Midstream Partners LP's reversed Longhorn Pipeline will begin filling with crude oil in mid-March and reach its 225,000-barrel-per-day capacity in the third quarter, the company said on Tuesday. Magellan had said the ramp-up to full capacity would happen by the middle of the year. The reversed pipeline will ship West Texas crude oil to the U.S. Gulf Coast. Magellan said the line will carry 75,000 bpd by mid-April. The project will reverse flow of the Crane-to-Houston segment of Longhorn Pipeline, which had been used to carry refined products from Houston to El Paso, Texas. Crane, Texas is near the oil-rich Midland area in West Texas, where crude production has been surging. The pipeline will send crude that had moved to the glutted U.S. crude futures hub at Cushing, Oklahoma, to Houston-area refineries, where it can fetch a higher price. Crude oil traders in the cash market have been expecting the pipeline to provide support to West Texas crude grades like West Texas Intermediate at Midland and West Texas Sour.

Reuters also reported that Sunoco Logistics Partners reported shut down of an intrastate pipeline on Monday near Breckenridge, Texas following a spill, according to a filing with national regulators. The release was secured and the leak was excavated and clamped, the filing with the U.S. National Response Center said. About 25 barrels of crude oil were spilled, the filing said. The Sunoco Logistics crude oil pipeline system consists of about 4,900 miles of crude oil trunk pipelines and 500 miles of crude oil gathering pipelines in the southwest and mid-west regions of the United States, according to its website. The Texas system is connected to the Mid-Valley pipeline, other third-party pipelines and its Nederland terminal, Texas.

Mid-west gas pains may continue as well. BP confirmed a report from Barbra Powell of Bloomberg when she reported back in December that the Whiting refinery upgrade will take much longer than originally expected! On the BP earning call yesterday BP reported, “On the Whiting project, so, this is a project again, this is a structurally advantaged project to process heavy crude with a lot of flexibility there. The site construction as of this week is 84% complete at the end of the year it now continues to move through well above 85% complete. The commissioning is on schedule. The second half of the year! The major crude unit outage started on schedule in early November and that will continue to be out until the middle of 2013. And I think for us, the whole commissioning process will take roughly 6 to 9 months with three of the major units starting in the sequence there. So, we do anticipate 2014 will be the first year we get the full benefits of it!”

The products led us because of this but the building stocks of crude should continue to weigh on oil led by West Texas. I expect that today’s Energy Information Agency report should be very similar to the API.

In the meantime platinum and palladium continue to soar on shortage fears. Cocoa had a nice pop on Ivory Coast worries and sugar fell on fears of weakening European demand.

Natural gas turned up as the weather forecasts are getting colder by the minute. Longer term in the curve we are looking very good.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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